The Impact of the Value added Tax on Saudi Corporation Profitability -An Applied Study

Document Type : Original Article

Authors

1 Associate Professor, Department of Accounting King Abdulaziz University

2 Graduate student in the Accounting Department College of Economics and Administration - King Abdulaziz University

Abstract

Value-added tax (VAT) was imposed in the Kingdom of Saudi Arabia in early 2018, followed by a raise in the tax rate from 5% to 15% in mid-2020. Therefore, our aim in the current study is to measure whether imposing a VAT or increasing VAT rate has an impact on the profitability of the Saudi Corporations participating in the Saudi financial market (Tadawul).
The study covered a time series for the years 2017-2018-2021, and it was applied to a stratified random sample of 60 corporations that included all sectors of the corporations. In this study, we depended on the analytical descriptive approach, a set of data was extracted from the financial statements of the listed companies for the period under study to calculate profitability indicators (return on assets, return on equity, and profit margin rate).
The results showed that VAT has no impact on the profitability of the Saudi corporations, as there was insignificant relationship between profitability ratios before and after the imposition of value-added tax, as well as before and after the increase in the value-added tax rate, although a slight change in the average of all ratios; the return on assets, the return on equity, and the profit margin whether before and after the imposition of VAT or after increasing the VAT ratio.
It is recommended conducting more research and studies to measure the impact of taxes on the financial performance of Saudi companies, which helps in efficiently achieving the goal of imposing taxes to enhance the performance of Saudi companies on the one hand, and on the other hand, by increasing the extent of the current study, either by doubling the time series of financial data or relying on a number of companies greater than the sample of the current study to confirm and test the results of the current study and in addition to enriching scientific research in this field. We also recommend that companies should disclose information regarding the amount of different tax items to help in analyzing and evaluating performance.

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